CM: Of late, there have been a number of cases involving possible share option abuses relating to options in the Zimbabwe dollar days and some approved recently. What is the position relating to disclosure of share options in terms of share splits (who got/gets what)? Should there be full disclosure on the part of companies given that elsewhere a number of executives have been found wanting in backdating scandals?
WB: Share option schemes are firstly a shareholder issue and they must vote for the share option scheme process. However, they have to comply with exchange requirements, in this case the ZSE rules and regulations. The regulator does not as a matter of course deal directly with listed companies on this issue but with the exchange itself. We seek to satisfy ourselves that the exchange procedures and regulations have been followed and that the regulations/rules of the exchange are fair, transparent and that there has been full disclosure and no stakeholder has been prejudiced.
The problem has been that most investors, including institutional investors, have been rather passive, and often pass issues without scrutinising them. It is therefore difficult where all due process has been followed to re-visit any issue in retrospect. In this respect, all we can do is to sensitise institutional investors on the need to fully exercise their rights in line with international best practice and challenge issues brought to EGM and AGMs. At another level, the SEC is expecting to review the ZSE rules and regulations to ensure that they are in line with the Act.
Where irregularities arise, the SEC will obviously intervene. We do not regulate through the Press because of the obvious impact it would have on the capital markets in general and on the company itself. But I can confirm we have looked at a couple of share option schemes which were done before we were appointed and in the Zimbabwe dollar environment and we have, through the ZSE, taken corrective measures. More importantly we were advised by the ZSE CEO that they have issued some guidelines with regard to share option schemes which were done during those days.
CM: Elsewhere, developed markets are compelling executives to disclose remuneration? Here, executive remuneration is shrouded in secrecy. What is SEC doing to ensure there is full disclosure on this front?
WB: One has to agree that our levels of disclosure have not been that rigorous and have fallen way below international best practice. The fourth schedule of SI .100/2010 covers guidelines on corporate governance practices for all institutions that are regulated by SEC in line with international best practice, particularly the IOSCO principles. We expect the ZSE to be working flat out to incorporate this into their Listing Rules. If you look at the JSE Rules, for example, you will find that they have incorporated King II into the rules. Additionally, the Companies Act in South Africa has been revised to incorporate these corporate governance issues.
You might also be interested to know that Zimbabwe is currently crafting a National Code of Conduct and I chair the thematic committee dealing with Integrated Reporting and Financial Disclosure. The process is now looking into King III where we are looking beyond the financials into the impact on the community and environment, etc. We have all seen how BP was affected by the Gulf spill. Going forward, we will be expecting more disclosure, definitely on remuneration-related parties and other issues which can lead to insider trading, price manipulation, etc, as these are important.
CM: Has SEC made any enquiries in possible share options scandals on the market? If so how many cases since SEC came into existence? What were the findings of such inquiries?
WB: Like I said before, the ZSE owns the process as shown, SEC will then take up any disputes that arise out of that process.
CM: There is concern that you are overstepping your boundaries by leaving your key mandate and opting to regulate journalists already regulated by Zimbabwe Media Commission and bound by such laws as Aippa. What do you say to that?
WB: Let me categorically say that the SEC has no intention now nor have we had the intention in the past to regulate journalists. That is the mandate or jurisdiction of the Zimbabwe Media Commission. However, I can understand how the furore arose given the definition in the Securities Act [Chapter 24:25], Section 2(1)(b)(ii) and section 38(1)(b). Our Act is fashioned along the USA one that also caused an uproar on whether the SEC there wanted to gag the press. A financial journalist in this regard is not your normal reporter who reports on market issues or business issues. It refers to someone whose core business is actually proferring investment or financial advice and who also publishes that information. That person would in effect be already registered by the SEC anyway. The SEC Secretariat has already met with the secretariat at the Zimbabwe Media Commission to clarify the issue and I hope that concludes it.
But I think the fundamental issue in this regard which is also very topical globally and which the local media might also want to debate concerns the crucial role which financial and business journalists play in the capital markets. As regulators, we expect and indeed desire that the media will put the financial system under scrutiny. We also expect you to fully understand the complex nature of the financial story, hence it is important to look at the context, diverse views and background of the story. It will be important for the public to really know what is happening. For instance, it might be factual to say there is a clash between SEC and the ZSE on the Investor Protection levy, a story you once carried. It would be important to know the origins of that clash, the background, gather all the views and to carry the story to its definite end. Journalists influence opinions and perceptions not only locally, but international. Investors also rely on you a lot so it would be good to have adequate training maybe as a special course in journalistic training.
CM: What is the mandate of SEC in short?
WB: The key objectives of the commission are (Section 4): Providing high levels of investor protection, reducing systemic risk in the capital markets, promoting market integrity and investor confidence, preventing market manipulation, fraud and financial crime, ensuring transparency in capital and securities markets and promoting investor education.
The Securities Commission is responsible for:
Regulating trading and dealing in securities, registering, supervising and regulating securities exchanges, licensing , supervising and regulating licensed persons, encouraging the development of free, fair and orderly capital and securities markets in Zimbabwe and advising the government of Zimbabwe on all matters relating to securities and capital markets.
SEC regulates capital market players which include securities exchanges (eg Zimbabwe Stock Exchange), securities dealers (eg stockbrokers), transfer secretaries, custodians, investment advisers and investment management.
CM: When is the SEC going to assume the regulatory role of asset management companies?
WB: The Ministry of Finance is working on the modalities of the transfer of Asset Management Companies and Collective Investment Schemes to SEC.
CM: Many financial writers don’t want to be financial advisors. Why does SEC want writers to be financial advisors?
WB: The SEC does not want writers to be financial advisers. SEC will only licence those who give investment advice that fall under the ambit of the Securities Act Chapter (24:25).
The definitions are as follows: “investment advice” — as per Section 2(1) (b) (ii) is the issuing or publishing of analyses or reports on securities; “financial advice” — as per Section 112 (1) is any written advice, analyses or reports in regard to securities. Section 38 specifies persons that require licenses and investment advisors are included, subsection (1) (b).
Section 38(3) excludes certain persons from licensing in terms of the Act and in particular subsection(3) (vii) excludes the printer or publisher of a newspaper, magazine or other periodical in which advice, analyses or reports are published in regard to securities, but this is only in certain circumstances.
Journalists were attracted to that part of the Statutory Instrument which affected them directly. Now that the air has been cleared I hope that you will also shift your interest to the rest of the SI 100 because it shifted the capital markets drastically in terms of structure and operation. Firstly, it is now legally feasible to register more exchanges, be they stock, commodity, bond etc. It also changed the structure and operations of managing the ZSE. Most investors were uncomfortable with what they called the “informal club arrangement” at the ZSE where brokers set the rules, played and refereed themselves.
At this point in time, in this age of globalisation and corporate governance, our bourse fell short of the minimum international standards and discouraged inflow of investment into the capital market. Locally there have been complaints of partiality from stakeholders, but no-one could do anything about it. The ZSE will now have a more diverse board or management committee which looks after the interests of all stakeholders.
This committee/board, unlike in the past, will also have proper oversight on the ZSE management or secretariat. It would have taken a really brave broker to challenge a CEO with as much powers as those given under the ZSE Act. We thus expect that the ZSE will be strengthened in terms of capacity and governance and all this will increase market integrity and attract more players and deepen the capital market in general.